10KSB 1 uigp.txt UIGP SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-KSB [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period _________to _________ Commission file number 0-17645 UNITED INVESTORS GROWTH PROPERTIES (Name of small business issuer in its charter) Missouri 43-1483928 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 55 Beattie Place, PO Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (864) 239-1000 Issuer's telephone number Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Units of Limited Partnership Interests (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] State issuer's revenues for its most recent fiscal year. $1,637,000 State the aggregate market value of the voting partnership interests held by non-affiliates computed by reference to the price at which the partnership interests were sold, or the average bid and asked prices of such partnership interests as of December 31, 2002. No market exists for the limited partnership interests of the Registrant, and, therefore, no aggregate market value can be determined. DOCUMENTS INCORPORATED BY REFERENCE None The matters discussed in this report contain certain forward-looking statements, including, without limitation, statements regarding future financial performance and the effect of government regulations. The discussions of the Registrant's business and results of operations, including forward-looking statements pertaining to such matters, do not take into account the effects of any changes to the Registrant's business and results of operations. Actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors including, without limitation: national and local economic conditions; the terms of governmental regulations that affect the Registrant and interpretations of those regulations; the competitive environment in which the Registrant operates; financing risks, including the risk that cash flows from operations may be insufficient to meet required payments of principal and interest; real estate risks, including variations of real estate values and the general economic climate in local markets and competition for tenants in such markets; and possible environmental liabilities. Readers should carefully review the Registrant's financial statements and the notes thereto, as well as the risk factors described in the documents the Registrant files from time to time with the Securities and Exchange Commission. PART I Item 1. Description of Business United Investors Growth Properties (the "Registrant" or "Partnership"), a Missouri Limited Partnership, was organized as a limited partnership under the laws of the State of Missouri on July 1, 1988. The Partnership is governed by an Agreement of Limited Partnership dated October 24, 1988. United Investors Real Estate, Inc., a Delaware corporation, is the sole general partner (the "General Partner" or "UIRE") of the Partnership. UIRE was wholly-owned by MAE GP Corporation ("MAE GP"). Effective February 25, 1998, MAE GP was merged into Insignia Properties Trust ("IPT"), which is a subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. Thus the General Partner is now a wholly-owned subsidiary of AIMCO. The Partnership Agreement provides that the Partnership is to terminate on December 31, 2018 unless terminated prior to such date. The Partnership's primary business is to operate and hold existing real estate properties for investment. The Partnership acquired three multifamily residential properties and a retail center which included medical office space. In addition, the Partnership owned a 60% interest in a joint venture which owned a multifamily residential property. During the third quarter of 1995, the joint venture property was sold. During the fourth quarter of 1998, the commercial property was foreclosed on by the lender holding the mortgage encumbering the property. On January 3, 2001, the Partnership sold one of its remaining residential properties, Cheyenne Woods Apartments. The two remaining properties at December 31, 2002, are further described in "Item 2. Description of Properties" below. Commencing on or about June 13, 1988, the Partnership offered pursuant to a Registration Statement filed with the Securities and Exchange Commission, up to a maximum of 80,000 Units of limited partnership interest (the "Units") at $250 per Unit with a minimum required purchase of eight Units or $2,000 (four Units or $1,000 for an Individual Retirement Account). Since its initial offering, the Registrant has not received, nor are limited partners required to make, additional capital contributions. The offering of Units terminated June 13, 1990. Upon termination of the offering, the Partnership had accepted subscriptions for 39,297 Units resulting in Gross Offering Proceeds of $9,824,250. The Registrant has no employees. Management and administrative services are provided by the General Partner and by agents retained by the General Partner. An affiliate of the General Partner provided such property management services for the years ended December 31, 2002 and 2001. Risk Factors The real estate business in which the Partnership is engaged is highly competitive. There are other residential properties within the market area of the Partnership's properties. The number and quality of competitive properties, including those which may be managed by an affiliate of the General Partner in such market area, could have a material effect on the rental market for the apartments at the Partnership's properties and the rents that may be charged for such apartments. While the General Partner and its affiliates own and/or control a significant number of apartment units in the United States, such units represent an insignificant percentage of total apartment units in the United States and competition for the apartments is local. Laws benefiting disabled persons may result in the Partnership's incurrence of unanticipated expenses. Under the Americans with Disabilities Act of 1990, or ADA, all places intended to be used by the public are required to meet certain Federal requirements related to access and use by disabled persons. Likewise, the Fair Housing Amendments Act of 1988, or FHAA, requires apartment properties first occupied after March 13, 1990 to be accessible to the handicapped. These and other Federal, state and local laws may require modifications to the Partnership's properties, or restrict renovations of the properties. Noncompliance with these laws could result in the imposition of fines or an award of damages to private litigants and also could result in an order to correct any non-complying feature, which could result in substantial capital expenditures. Although the General Partner believes that the Partnership's properties are substantially in compliance with present requirements, the Partnership may incur unanticipated expenses to comply with the ADA and the FHAA. Both the income and expenses of operating the properties owned by the Partnership are subject to factors outside of the Partnership's control, such as changes in the supply and demand for similar properties resulting from various market conditions, increases/decreases in unemployment or population shifts, changes in the availability of permanent mortgage financing, changes in zoning laws, or changes in patterns or needs of users. In addition, there are risks inherent in owning and operating residential properties because such properties are susceptible to the impact of economic and other conditions outside of the control of the Partnership. There have been, and it is possible there may be other, Federal, state and local legislation and regulations enacted relating to the protection of the environment. The Partnership is unable to predict the extent, if any, to which such new legislation or regulations might occur and the degree to which such existing or new legislation or regulations might adversely affect the properties owned by the Partnership. The Partnership monitors its properties for evidence of pollutants, toxins and other dangerous substances, including the presence of asbestos. In certain cases environmental testing has been performed which resulted in no material adverse conditions or liabilities. In no case has the Partnership received notice that it is a potentially responsible party with respect to an environmental clean up site. Insurance coverage is becoming more expensive and difficult to obtain. The current insurance market is characterized by rising premium rates, increasing deductibles, and more restrictive coverage language. Recent developments have results in significant increases in insurance premiums and have made it more difficult to obtain certain types of insurance. As an example, many insurance carriers are excluding mold-related risks from their policy coverages, or are adding significant restrictions to such coverage. Continued deterioration in insurance market place conditions may have a negative effect on the Partnership's operating results. A further description of the Partnership's business is included in "Item 6 - Management's Discussion and Analysis or Plan of Operation" of this Form 10-KSB. Item 2. Description of Properties: The following table sets forth the Partnership's investments in properties:
Date of Property Purchase Type of Ownership Use Terrace Royale Apartments 11/01/88 Fee ownership subject Apartment Bothell, Washington to first mortgage (1) 80 units Deerfield Apartments 10/24/90 Fee ownership subject Apartment Memphis, Tennessee to first mortgage (1) 136 units
(1) Property is held by a limited liability company in which the Registrant owns a 100% interest. Schedule of Properties: Set forth below for each of the Registrant's properties is the gross carrying value, accumulated depreciation, depreciable life, method of depreciation and Federal tax basis.
Gross Carrying Accumulated Depreciable Federal Property Value Depreciation Life Method Tax Basis (in thousands) (in thousands) Terrace Royale Apartments $ 4,767 $ 2,145 5-40 yrs S/L $ 2,625 Deerfield Apartments 5,308 2,280 5-40 yrs S/L 2,831 Totals $10,075 $ 4,425 $ 5,456
See "Item 7. Financial Statements, Note A" for a description of the Partnership's capitalization and depreciation policies. Schedule of Property Indebtedness: The following table sets forth certain information relating to the loans encumbering the Registrant's properties.
Principal Principal Balance At Stated Balance December 31, Interest Period Maturity Due At Property 2002 Rate Amortized Date Maturity (1) (in thousands) (in thousands) Terrace Royale Apartments $ 3,128 6.51% 20 yrs 02/19 $ -- Deerfield Apartments 3,401 7.34% 30 yrs 12/04 3,303 Total $ 6,529 $ 3,303
(1) See "Item 7. Financial Statements - Note D" for information with respect to the Registrant's ability to prepay these loans and other specific details about the loans. Rental Rates and Occupancy: Average annual rental rates and occupancy for 2002 and 2001 for each property: Average Annual Average Rental Rate Occupancy (per unit) Property 2002 2001 2002 2001 Terrace Royale Apartments $10,944 $11,168 89% 94% Deerfield Apartments 6,805 7,202 90% 92% The General Partner attributes the decrease in occupancy at Terrace Royale Apartments to tenants purchasing houses due to lower mortgage interest rates and increased competition in the local market of the Seattle area. As noted under "Item 1. Description of Business", the real estate industry is highly competitive. All of the properties are subject to competition from other residential apartment complexes in the localities in which they operate. The General Partner believes that all of the properties are adequately insured. The properties are apartment complexes which lease their units for terms of one year or less. No residential tenant leases 10% or more of the available rental space. All of the properties are in good physical condition, subject to normal depreciation and deterioration as is typical for assets of this type and age. Real Estate Taxes and Rates: Real estate taxes and rates in 2002 for each property were: 2002 2002 Billing Rate (in thousands) Terrace Royale Apartments $ 69 1.31% Deerfield Apartments 124 3.47% Capital Expenditures: Terrace Royale Apartments During the year ended December 31, 2002, the Partnership completed approximately $51,000 of capital improvements at Terrace Royale Apartments consisting primarily of appliance and floor covering replacements, structural improvements, plumbing improvements and window treatments. These improvements were funded from cash flow from operations. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year and currently expects to budget approximately $24,000. Additional improvements may be considered during 2003 and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Deerfield Apartments During the year ended December 31, 2002, the Partnership completed approximately $284,000 of capital improvements at Deerfield Apartments consisting primarily of exterior building painting, parking lot resurfacing, appliance and floor covering replacements, major landscaping, water submetering, and structural upgrades. These improvements were funded from operating cash flows, replacement reserves and insurance proceeds. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year and currently expects to budget approximately $40,800. Additional improvements may be considered during 2003 and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Item 3. Legal Proceedings The Partnership is unaware of any pending or outstanding litigation that is not of a routine nature arising in the ordinary course of business. Item 4. Submission of Matters to a Vote of Security Holders During the quarter ended December 31, 2002, no matters were submitted to a vote of Unit holders through the solicitation of proxies or otherwise. PART II Item 5. Market for Partnership Equity and Related Partner Matters The Partnership, a publicly held limited partnership, offered and sold 39,297 limited partnership units aggregating $9,824,250. The Partnership currently has 852 holders on record owning an aggregate of 39,287 Units. Affiliates of the General Partner owned 14,328 units or 36.47% at December 31, 2002. No public trading market has developed for the Units, and it is not anticipated that such a market will develop in the future. The following table sets forth the distributions made by the Partnership for the years ended December 31, 2001 and 2002: Distributions Per Limited Aggregate Partnership Unit (in thousands) 01/01/01 - 12/31/01 $ 570 (1) $14.36 01/01/02 - 12/31/02 $ -- $ -- (1) Distributions were made from operations and sale proceeds (see "Item 6 - Management's Discussion and Analysis or Plan of Operation" for further details). Future cash distributions will depend on the levels of net cash generated from operations, the availability of cash reserves and the timing of debt maturities, refinancings, and/or property sales. The Partnership's cash available for distribution is reviewed on a monthly basis. There can be no assurance, however, that the Partnership will generate sufficient funds from operations, after required capital expenditures, to permit any distributions to its partners in the year 2003 or subsequent periods. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 14,328 limited partnership units in the Partnership representing 36.47% of the outstanding Units at December 31, 2002. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional units of limited partnership interest in the Partnership in exchange for cash or a combination of cash and Units in the operating partnership of AIMCO either through private purchases or tender offers. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters which would include voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. Although the General Partner owes fiduciary duties to the limited partners of the Partnership, the General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the General Partner, as general partner, to the Partnership and its limited partners may come into conflict with the duties of the General Partner to AIMCO, as its sole stockholder. Item 6. Management's Discussion and Analysis or Plan of Operation This item should be read in conjunction with the consolidated financial statements and other items contained elsewhere in this report. Results of Operations The Registrant's net loss for the year ended December 31, 2002 was approximately $310,000 as compared to a net loss of approximately $292,000 for the year ended December 31, 2001. Effective January 1, 2002, the Partnership adopted Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which established standards for the way that public business enterprises report information about long-lived assets that are either being held for sale or have already been disposed of by sale or other means. The standard requires that results of operations for a long-lived asset that is being held for sale or has already been disposed of be reported as a discontinued operation on the statement of operations. As a result, the accompanying consolidated statements of operations have been restated as of January 1, 2001 to reflect the operations of Cheyenne Woods Apartments as loss from discontinued operations due to its sale in January 2001. Effective April 1, 2002, the Partnership adopted SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64". SFAS No. 4 "Reporting Gains and Losses from Extinguishment of Debt," required that all gains and losses from extinguishment of debt be aggregated and, if material, classified as an extraordinary item. SFAS No. 145 rescinds SFAS No. 4, and accordingly, gains and losses from extinguishment of debt should only be classified as extraordinary if they are unusual in nature and occur infrequently. Neither of these criteria applies to the Partnership. As a result, the accompanying consolidated statements of operations have been restated as of January 1, 2001 to reflect the loss on early extinguishment of debt of approximately $57,000 at Cheyenne Woods Apartments in discontinued operations rather than as an extraordinary item. On January 3, 2001, Cheyenne Woods, located in Las Vegas, Nevada, was sold to an unaffiliated third party for $4,200,000. After closing expenses and other payments of approximately $120,000 and the assumption of approximately $3,728,000 in debt by the purchaser, the net proceeds received by the Partnership were approximately $352,000. For financial statement purposes, the sale resulted in a loss of approximately $56,000, which had been recorded as an impairment loss during the year ended December 31, 2000. As a result, the financial statement impact recorded during the year ended December 31, 2001 was a loss from discontinued operations of approximately $81,000, which includes a loss on the early extinguishment of debt of approximately $57,000. Excluding the impact of discontinued operations, the Partnership had a loss of approximately $310,000 for the year ended December 31, 2002 as compared to a loss of approximately $211,000 for the year ended December 31, 2001. The increase in loss for the year ended December 31, 2002 is due to a decrease in total revenues partially offset by a decrease in total expenses. Total revenues decreased due to a decrease in rental income and casualty gain partially offset by an increase in other income. Rental income decreased due to a decrease in occupancy and average rental rates at both investment properties and an increase in bad debt expense at Deerfield Apartments partially offset by a decrease in concessions and special promotions at both investment properties. Other income increased due to an increase in late charges and lease cancellation fees at Deerfield Apartments and utility reimbursements at Terrace Royale Apartments partially offset by a decrease in interest income due to lower cash balances maintained in interest bearing accounts at the Partnership and its investment properties. During the year ended December 31, 2002, a net casualty gain of approximately $9,000 was recorded at Deerfield Apartments. The casualty gain related to fire damage to the apartment complex. The gain was a result of the receipt of insurance proceeds of approximately $37,000 offset by approximately $28,000 of undepreciated fixed assets being written off. During the year ended December 31, 2001, a net casualty gain of approximately $36,000 was recorded at Deerfield Apartments. The casualty gain related to fire damage to the apartment complex. The gain was a result of the receipt of insurance proceeds of approximately $69,000 offset by approximately $33,000 of undepreciated fixed assets being written off. Total expenses decreased for the year ended December 31, 2002 due to a decrease in property taxes and general and administrative expenses partially offset by an increase in depreciation expense. Property tax expense decreased due to a refund for overpayment of prior years' taxes at Deerfield Apartments. General and administrative expenses decreased due to a decrease in taxes and license fees and professional services partially offset by an increase in management reimbursements allowed to the General Partner under the Partnership Agreement. Included in general and administrative expenses for the years ended December 31, 2002 and 2001, are costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement. Depreciation expense increased due to fixed assets placed into service over the past twelve months at Deerfield Apartments. As part of the ongoing business plan of the Partnership, the General Partner monitors the rental market environment of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expenses. As part of this plan, the General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the General Partner will be able to sustain such a plan. Liquidity and Capital Resources At December 31, 2002, the Registrant had cash and cash equivalents of approximately $189,000 as compared to approximately $186,000 at December 31, 2001. The increase in cash and cash equivalents of approximately $3,000 from the Registrant's year ended December 31, 2001, is due to approximately $100,000 of cash provided by operating activities and approximately $194,000 of cash provided by financing activities which was partially offset by approximately $291,000 of cash used in investing activities. Cash used in investing activities consisted of property improvements and replacements partially offset by insurance proceeds received from the casualty at Deerfield Apartments and net withdrawals from escrow accounts maintained by the mortgage lender. Cash provided by financing activities consisted of advances from an affiliate of the General Partner partially offset by payments of principal made on the mortgages encumbering the Registrant's properties and payments against advances from an affiliate of the General Partner. The Partnership invests its working capital reserves in interest bearing accounts. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the properties to adequately maintain the physical assets and other operating needs of the Registrant and to comply with Federal, state and local legal and regulatory requirements. The General Partner monitors developments in the area of legal and regulatory compliance and is studying new federal laws, including the Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 mandates or suggests additional compliance measures with regard to governance, disclosure, audit and other areas. In light of these changes, the Partnership expects that it will incur higher expenses related to compliance, including increased legal and audit fees. Capital improvements planned for each of the Registrant's properties are detailed below. The Partnership is currently evaluating the capital improvement needs of the properties for the upcoming year and currently expects to budget approximately $64,800. Additional improvements may be considered and will depend on the physical condition of the properties as well as replacement reserves and anticipated cash flow generated by the properties. The additional capital expenditures will be incurred only if cash is available from operations or from Partnership reserves. To the extent that such budgeted capital improvements are completed, the Registrant's distributable cash flow, if any, may be adversely affected at least in the short term. The Partnership's assets are thought to be sufficient for any near term needs (exclusive of capital improvements) of the Partnership. The mortgage indebtedness of approximately $6,529,000 has maturity dates ranging from December 2004 to February 2019 with a balloon payment due at maturity for the mortgage encumbering Deerfield Apartments. The General Partner will attempt to refinance such indebtedness and/or sell the properties prior to such maturity dates. If the properties cannot be refinanced and/or sold for a sufficient amount, the Partnership may risk losing such properties through foreclosure. Pursuant to the Partnership Agreement, the term of the Partnership is scheduled to expire on December 31, 2018. Accordingly, prior to such date the Partnership will need to either sell its investment properties or extend the term of the Partnership. The Partnership distributed the following amounts during the years ended December 31, 2002 and 2001 (in thousands except per unit data):
Per Per Year Ended Limited Year Ended Limited December 31, Partnership December 31, Partnership 2002 Unit 2001 Unit Operations $ -- $ -- $ 272 $ 6.85 Sale (1) -- -- 298 7.51 $ -- $ -- $ 570 $14.36
(1) Distribution made from sales proceeds of Cheyenne Woods. The Registrant's cash available for distribution is reviewed on a monthly basis. There can be no assurance, however, that the Registrant will generate sufficient funds from operations after required capital expenditures to permit any distributions to its partners in 2003 or subsequent periods. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 14,328 limited partnership units in the Partnership representing 36.47% of the outstanding Units at December 31, 2002. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional units of limited partnership interest in the Partnership in exchange for cash or a combination of cash and Units in the operating partnership of AIMCO either through private purchases or tender offers. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters which would include voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. Although the General Partner owes fiduciary duties to the limited partners of the Partnership, the General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the General Partner, as general partner, to the Partnership and its limited partners may come into conflict with the duties of the General Partner to AIMCO, as its sole stockholder. Critical Accounting Policies and Estimates A summary of the Partnership's significant accounting policies is included in "Note A - Organization and Significant Accounting Policies" which is included in the consolidated financial statements in "Item 7. Financial Statements". The General Partner believes that the consistent application of these policies enables the Partnership to provide readers of the financial statements with useful and reliable information about the Partnership's operating results and financial condition. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the Partnership to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements as well as reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Judgments and assessments of uncertainties are required in applying the Partnership's accounting policies in many areas. The following may involve a higher degree of judgment and complexity. Impairment of Long-Lived Assets Investment properties are recorded at cost, less accumulated depreciation, unless considered impaired. If events or circumstances indicate that the carrying amount of a property may be impaired, the Partnership will make an assessment of its recoverability by estimating the undiscounted future cash flows, excluding interest charges, of the property. If the carrying amount exceeds the aggregate future cash flows, the Partnership would recognize an impairment loss to the extent the carrying amount exceeds the fair value of the property. Real property investments are subject to varying degrees of risk. Several factors may adversely affect the economic performance and value of the Partnership's investment properties. These factors include changes in the national, regional and local economic climate; local conditions, such as an oversupply of multifamily properties; competition from other available multifamily property owners and changes in market rental rates. Any adverse changes in these factors could cause an impairment in the Partnership's assets. Revenue Recognition The Partnership generally leases apartment units for twelve-month terms or less. Rental income attributable to leases is recognized monthly as it is earned and the Partnership fully reserves all balances outstanding over thirty days. The Partnership will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Concessions are charged to income as incurred. Item 7. Financial Statements UNITED INVESTORS GROWTH PROPERTIES LIST OF FINANCIAL STATEMENTS Report of Ernst & Young LLP, independent auditors as of and for the year ended December 31, 2002 Independent auditors' report - for the year ended December 31, 2001 Consolidated Balance Sheet - December 31, 2002 Consolidated Statements of Operations - Years ended December 31, 2002 and 2001 Consolidated Statements of Changes in Partners' (Deficit) Capital - Years ended December 31, 2002 and 2001 Consolidated Statements of Cash Flows - Years ended December 31, 2002 and 2001 Notes to Consolidated Financial Statements Report of Ernst & Young LLP, Independent Auditors The Partners United Investors Growth Properties We have audited the accompanying consolidated balance sheet of United Investors Growth Properties as of December 31, 2002, and the related consolidated statement of operations, change in partners' (deficit) capital, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by Partnership management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of United Investors Growth Properties as of December 31, 2002, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States. As discussed in Note A to the consolidated financial statements, in 2002 the Partnership adopted Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" and Statement of Financial Accounting Standards No. 145, "Recission of FSAB Statements No. 4, 44, and 64." As a result, the accompanying consolidated financial statements for 2001, referred to above, have been restated to conform to the presentation adopted in 2002 in accordance with accounting principles generally accepted in the United States. /s/ERNST & YOUNG LLP Greenville, South Carolina February 14, 2003 Independent Auditors' Report The Partners United Investors Growth Properties We have audited the accompanying consolidated statements of operations, changes in partners' (deficit) capital and cash flows of United Investors Growth Properties (the Partnership) for the year ended December 31, 2001. These consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of the Partnership for the year ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note A to the consolidated financial statements, on January 1, 2002, the Partnership adopted Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" and Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44 and 64." /s/KPMG LLP Greenville, South Carolina February 8, 2002, except for Note A As to which the date is March 26, 2003 UNITED INVESTORS GROWTH PROPERTIES CONSOLIDATED BALANCE SHEET (in thousands, except unit data) December 31, 2002
Assets Cash and cash equivalents $ 189 Receivables and deposits 61 Restricted escrows 82 Other assets 133 Investment properties (Notes B, D and G): Land $ 893 Buildings and related personal property 9,182 10,075 Less accumulated depreciation (4,425) 5,650 $ 6,115 Liabilities and Partners' Deficit Liabilities Accounts payable $ 44 Tenant security deposit liabilities 36 Accrued property taxes 59 Other liabilities 72 Due to General Partner 418 Mortgage notes payable (Note D) 6,529 Partners' Deficit General partner $ (16) Limited partners (39,287 units issued and outstanding) (1,027) (1,043) $ 6,115 See Accompanying Notes to Consolidated Financial Statements
UNITED INVESTORS GROWTH PROPERTIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per unit data)
Years Ended December 31, 2002 2001 (Restated) Revenues: Rental income $ 1,487 $ 1,625 Other income 141 105 Casualty gain (Note C) 9 36 Total revenues 1,637 1,766 Expenses: Operating 712 709 General and administrative 121 158 Depreciation 440 412 Interest 496 491 Property taxes 178 207 Total expenses 1,947 1,977 Loss before discontinued operations (310) (211) Loss from discontinued operations -- (81) Net loss $ (310) $ (292) Net loss allocated to general partner (1%) $ (3) $ (3) Net loss allocated to limited partners (99%) (307) (289) $ (310) $ (292) Per limited partnership unit: Loss before discontinued operations $ (7.81) $ (5.32) Loss from discontinued operations -- (2.04) Net loss $ (7.81) $ (7.36) Net loss Distributions per limited partnership unit $ -- $ 14.36
See Accompanying Notes to Consolidated Financial Statements UNITED INVESTORS GROWTH PROPERTIES CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL (in thousands, except unit data)
Limited Partnership General Limited Units Partner Partners Total Original capital contributions 39,297 $ -- $ 9,824 $ 9,824 Partners' (deficit) capital at December 31, 2000 39,287 $ (4) $ 133 $ 129 Distribution to partners -- (6) (564) (570) Net loss for the year ended December 31, 2001 -- (3) (289) (292) Partners' deficit at December 31, 2001 39,287 (13) (720) (733) Net loss for the year ended December 31, 2002 -- (3) (307) (310) Partners' deficit at December 31, 2002 39,287 $ (16) $(1,027) $(1,043) See Accompanying Notes to Consolidated Financial Statements
UNITED INVESTORS GROWTH PROPERTIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Years Ended December 31, 2002 2001 Cash flows from operating activities: Net loss $ (310) $ (292) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 440 412 Loss on early extinguishment of debt -- 57 Casualty gain (9) (36) Amortization of loan costs 22 22 Change in accounts: Receivables and deposits 17 5 Other assets (2) 14 Accounts payable 10 (5) Tenant security deposit liabilities (11) (30) Accrued property taxes (9) 26 Due to General Partner 62 10 Other liabilities (110) 22 Net cash provided by operating activities 100 205 Cash flows from investing activities: Proceeds from sale of investment property -- 352 Net insurance proceeds received 37 69 Property improvements and replacements (335) (211) Net withdrawals from (deposits to) restricted escrows 7 (15) Net cash (used in) provided by investing activities (291) 195 Cash flows from financing activities: Payments on mortgage notes payable (152) (142) Advances from general partner 424 28 Repayment of advances from general partner (78) (18) Distributions to partners -- (570) Net cash provided by (used in) financing activities 194 (702) Net increase (decrease) in cash and cash equivalents 3 (302) Cash and cash equivalents at beginning of year 186 488 Cash and cash equivalents at end of year $ 189 $ 186 Supplemental disclosure of cash flow information: Cash paid for interest $ 462 $ 495 Supplemental disclosure of non-cash activity: Mortgage assumed by purchaser of Cheyenne Woods $ -- $ 3,728 See Accompanying Notes to Consolidated Financial Statements
UNITED INVESTORS GROWTH PROPERTIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2002 Note A - Organization and Significant Accounting Policies Organization: United Investors Growth Properties (the "Partnership" or "Registrant"), a Missouri Limited Partnership, was organized in July 1988, and the initial group of limited partners was admitted on October 24, 1988. Additional partners were admitted through June 1990. The Partnership was formed to operate and hold certain types of income-producing real estate. United Investors Real Estate, Inc. (the "General Partner") is the General Partner. Effective December 31, 1992, 100% of the General Partner's common stock was purchased by MAE GP Corporation ("MAE GP"). Effective February 25, 1998, MAE GP was merged into Insignia Properties Trust ("IPT"), which is a subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. Thus the General Partner is now a wholly-owned subsidiary of AIMCO. Principles of Consolidation: The consolidated financial statements include all the accounts of the Partnership and its two 100% owned limited liability companies, Terrace Royale, L.L.C. and Deerfield Apartments, L.L.C. Although legal ownership of the respective asset remains with these entities, the Partnership retains all economic benefits from the properties. As a result, the Partnership consolidates its interest in these two entities, whereby all accounts are included in the consolidated financial statements of the Partnership with all inter-entity accounts being eliminated. Cash and Cash Equivalents: Cash and cash equivalents includes cash on hand and in banks. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Cash balances include approximately $154,000 at December 31, 2002 that are maintained by the affiliated management company on behalf of affiliated entities in cash concentration accounts. Tenant Security Deposits: The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. Deposits are refunded when the tenant vacates, provided the tenant has not damaged the space and is current on rental payments. Restricted Escrows: Replacement reserve accounts were established in 1997 with the refinancing proceeds for Deerfield Apartments. Deerfield Apartments makes a monthly deposit to establish and maintain a Replacement Reserve designated to cover necessary repairs and replacements of existing improvements at the property. A repair escrow was established in 1999 with the refinancing proceeds from Terrace Royale Apartments. The reserve account balance at December 31, 2002, was approximately $82,000 which includes interest. Leases: The Partnership generally leases apartment units for twelve-month terms or less. The Partnership recognizes income as earned on its leases and the Partnership fully reserves all balances outstanding over thirty days. In addition, the General Partner's policy is to offer rental concessions during periods of declining occupancy or in response to heavy competition from other similar complexes in the area. Concessions are charged against rental income as incurred. Investment Properties: Investment properties consist of two apartment properties and are stated at cost. Acquisition fees are capitalized as a cost of real estate. Expenditures in excess of $250 that maintain an existing asset which has a useful life of more than one year are capitalized as capital replacement expenditures and depreciated over the estimated useful life of the asset. Expenditures for ordinary repairs, maintenance and apartment turnover costs are expensed as incurred. In accordance with Statement of Financial Accounting Standards ("SFAS") Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. Costs of apartment properties that have been permanently impaired have been written down to appraisal value. During the fourth quarter of 2000, the Partnership determined that Cheyenne Woods Apartments located in North Las Vegas, Nevada, with a carrying value of $4,136,000 was impaired and accordingly recorded an impairment loss of $56,000 for the year ended December 31, 2000 related to Cheyenne Woods Apartments. The fair value was based upon the sales price received for the property upon its January 3, 2001 sale date. No adjustments for impairment of value were recorded in the years ended December 31, 2002 and 2001, respectively. See "Recent Accounting Pronouncements" below. During 2001, AIMCO, an affiliate of the General Partner, commissioned a project to study process improvement ideas to reduce operating costs. The result of the study led to a re-engineering of business processes and eventual redeployment of personnel and related capital spending. The implementation of these plans during 2002, accounted for as a change in accounting estimate, resulted in a refinement of the Partnership's process for capitalizing certain direct and indirect project costs (principally payroll related costs) and increased capitalization of such costs by approximately $34,000 in 2002 compared to 2001. Depreciation: Depreciation is provided by the straight-line method over the estimated lives of the apartment properties and related personal property. For Federal income tax purposes, the accelerated cost recovery method is used for real property over 18 years for additions after March 15, 1984, and before May 9, 1985, and 19 years for additions after May 8, 1985, and before January 1, 1987. As a result of the Tax Reform Act of 1986, for additions after December 31, 1986, the modified accelerated cost recovery method is used for depreciation of (1) real property additions over 27 1/2 years and (2) personal property additions over 5 years. Allocations of Profits, Gains and Losses: Allocation of net income and loss - In accordance with the partnership agreement, net income and net loss (as defined in the partnership agreement, income or loss of the Partnership determined without regard to gain or loss from sale) shall be allocated 1% to the General Partner and 99% to the limited partners. Distributions - The Partnership allocates distributions 1% to the General Partner and 99% to the limited partners. Gain/Loss from a Sale - Gain from a sale shall be allocated as follows: First to each partner who has a negative capital account, an amount equal to (or in proportion to, if less than) such partner's negative capital account balance. Second, 99% to the limited partners and 1% to the General Partner, until each limited partner has been allocated an amount equal to (or in proportion to, if less than) the excess, if any, of such limited partner's adjusted capital investment over his capital account. Third, 99% to the limited partners and 1% to the General Partner, until each limited partner has received a 10% per annum preferred return on their adjusted capital investment or, if greater, a 6% cumulative annual return. Fourth, the balance will be allocated 85% to the limited partners and 15% to the General Partner. The interest of the General Partner, in the aggregate, in each material item of income, gain, loss, deduction and credit of the Partnership will be equal to at least 1% of each item at all times during the existence of the Partnership. Fair Value of Financial Instruments: SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", as amended by SFAS No. 119, "Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments", requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. Fair value is defined in the SFAS as the amount at which the instruments could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Partnership believes that the carrying amount of its financial instruments (except for long term debt) approximates their fair value due to the short term maturity of these instruments. The fair value of the Partnership's long term debt at December 31, 2002, after discounting the scheduled loan payments to maturity, approximates its carrying balance. Loan costs: Loan costs of approximately $226,000, less accumulated amortization of approximately $107,000, are included in other assets and are being amortized by the straight-line method over the life of the loans. Amortization expense is included in interest expense. Amortization expense is expected to be approximately $22,000 for 2003 and 2004 and approximately $5,000 for the years 2005 through 2007. Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Advertising: The Partnership expenses the cost of advertising as incurred. Advertising costs of approximately $34,000 and $45,000 for the years ended December 31, 2002 and 2001, respectively, were charged to operating expense as incurred. Segment Reporting: SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information" established standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also established standards for related disclosures about products and services, geographic areas, and major customers. As defined in SFAS No. 131, the Partnership has only one reportable segment. Recent Accounting Pronouncements In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 provides accounting guidance for financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Partnership adopted SFAS No. 144 effective January 1, 2002. As a result the consolidated statements of operations have been restated as of January 1, 2001 to reflect the operations of Cheyenne Woods Apartments as loss from discontinued operations. In April 2002, the Financial Accounting Standards Board issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64". SFAS No. 4 "Reporting Gains and Losses from Extinguishment of Debt," required that all gains and losses from extinguishment of debt be aggregated and, if material, classified as an extraordinary item. SFAS No. 145 rescinds SFAS No. 4, and accordingly, gains and losses from extinguishment of debt should only be classified as extraordinary if they are unusual in nature and occur infrequently. SFAS No. 145 is effective for fiscal year beginning after May 15, 2002 with early adoption an option. The Partnership adopted SFAS No. 145 effective April 1, 2002. As a result, the accompanying consolidated statement of operations have been restated as of January 1, 2001 to reflect the loss on early extinguishment of debt of approximately $57,000 at Cheyenne Woods in discontinued operations rather than as an extraordinary item. Note B - Sale of Investment Property On January 3, 2001, Cheyenne Woods Apartments, located in Las Vegas, Nevada, was sold to an unaffiliated third party for $4,200,000. After closing expenses and other payments of approximately $120,000 and the assumption of approximately $3,728,000 in debt by the purchaser, the net proceeds received by the Partnership were approximately $352,000. For financial statement purposes, the sale resulted in a loss of approximately $56,000, which was recorded as an impairment loss during the year ended December 31, 2000. As a result, the only financial statement impact recorded during the year ended December 31, 2001 was the recognition of a loss from discontinued operations of approximately $81,000, which includes a loss on the early extinguishment of debt of approximately $57,000 due to the write off of unamortized loan costs. Note C - Casualty Gain During the year ended December 31, 2002 a net casualty gain of approximately $9,000 was recorded at Deerfield Apartments. The casualty gain related to fire damage to the apartment complex that occurred on October 26, 2001. The gain was a result of the receipt of insurance proceeds of approximately $37,000 offset by approximately $28,000 of undepreciated fixed assets being written off. During the year ended December 31, 2001, a net casualty gain of approximately $36,000 was recorded at Deerfield Apartments. The casualty gain related to fire damage to the apartment complex. The gain was a result of the receipt of insurance proceeds of approximately $69,000 offset by approximately $33,000 of undepreciated fixed assets being written off. Note D - Mortgage Notes Payable
Principal Monthly Principal Balance At Payment Stated Balance December 31, Including Interest Maturity Due At 2002 Interest Rate Date Maturity Property (in thousands) (in thousands) Terrace Royale Apartments $ 3,128 $ 26 6.51% 02/19 $ -- Deerfield Apartments 3,401 25 7.34% 12/04 3,303 Total $ 6,529 $ 51 $ 3,303
The mortgage notes payable are nonrecourse and are secured by pledge of the respective properties and by pledge of revenues from operation of the respective properties. The mortgage notes collateralized by the Terrace Royale Apartments and Deerfield Apartments each contain clauses providing for prepayment penalties if the loans are repaid prior to maturity. Further, the properties may not be sold subject to existing indebtedness. Scheduled principal payments of the mortgage notes payable subsequent to December 31, 2002 are as follows (in thousands): 2003 $ 162 2004 3,472 2005 129 2006 137 2007 147 Thereafter 2,482 $ 6,529 Note E - Transactions with Affiliated Parties The Partnership has no employees and is dependent on the General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement provides for (i) certain payments to affiliates for services and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. During the years ended December 31, 2002 and 2001, affiliates of the General Partner were entitled to receive 5% of gross receipts from all of the Registrant's residential properties as compensation for providing property management services. The Registrant paid to such affiliates approximately $85,000 and $95,000 for the years ended December 31, 2002 and 2001, respectively. An affiliate of the General Partner received reimbursement of accountable administrative expenses amounting to approximately $82,000 and $67,000 for the years ended December 31, 2002 and 2001. Included in these amounts are fees related to construction management services provided by an affiliate of the General Partner of approximately $26,000 and $17,000 for the years ended December 31, 2002 and 2001, respectively. The construction management service fees are calculated based on a percentage of current year additions to investment properties. As of December 31, 2002, the Partnership owed approximately $51,000 to an affiliate of the General Partner for reimbursement of accountable administrative expenses. During the years ended December 31, 2002 and 2001, an affiliate of the General Partner advanced the Partnership approximately $424,000 and $28,000 to cover operating obligations at Deerfield Apartments and the Partnership. The Partnership was able to repay approximately $78,000 and $18,000 of such advances during the years ended December 31, 2002 and 2001, respectively. At December 31, 2002, the Partnership owed an affiliate of the General Partner approximately $367,000. Interest is being charged at prime rate plus 2%, or 6.25%, at December 31, 2002, in accordance with the Partnership Agreement. During the year ended December 31, 2002, the Partnership recognized interest expense of approximately $15,000 relative to obligations to affiliates. No interest expense was recognized during the year ended December 31, 2001. Beginning in 2001, the Partnership began insuring its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty and vehicle liability. The Partnership insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the General Partner. During the years ended December 31, 2002 and 2001, the Partnership paid AIMCO and its affiliates approximately $29,000 and $18,000, respectively, for insurance coverage and fees associated with policy claims administration. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 14,328 limited partnership units in the Partnership representing 36.47% of the outstanding Units at December 31, 2002. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional units of limited partnership interest in the Partnership in exchange for cash or a combination of cash and Units in the operating partnership of AIMCO either through private purchases or tender offers. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters which would include voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. Although the General Partner owes fiduciary duties to the limited partners of the Partnership, the General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the General Partner, as general partner, to the Partnership and its limited partners may come into conflict with the duties of the General Partner to AIMCO, as it sole stockholder. Note F - Income Tax The following is a reconciliation between net loss as reported in the consolidated financial statements and Federal taxable loss allocated to the partners in the Partnership's tax return for the years ended December 31, 2002 and 2001 (in thousands, except per unit data): 2002 2001 Net loss as reported $ (310) $ (292) Add (deduct): Deferred revenue and other liabilities (2) 3 Depreciation differences (44) 144 Nondeductible reserves and allowances (33) 28 Other (9) (57) Federal taxable loss $ (398) $ (174) Federal taxable loss per limited partnership unit $ (9.85) $ (4.38) The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities at December 31, 2002 (in thousands): Net liabilities as reported $(1,043) Differences in basis of assets and liabilities: Accumulated depreciation (101) Other assets and liabilities 65 Syndication costs 1,362 Cost of property (94) Net assets - tax basis $ 189 Note G - Investment Properties and Accumulated Depreciation
Initial Cost To Partnership (in thousands) Buildings Net Cost and Related Capitalized Personal Subsequent to Description Encumbrances Land Property Acquisition (in thousands) (in thousands) Terrace Royale Apartments $ 3,128 $ 653 $ 3,496 $ 618 Deerfield Apartments 3,401 240 3,891 1,177 Totals $ 6,529 $ 893 $ 7,387 $ 1,795
Gross Amount At Which Carried At December 31, 2002 (in thousands) Buildings And Related Personal Accumulated Date of Date Depreciable Description Land Property Total Depreciation Construction Acquired Life-Years (in thousands) Terrace Royale Apartments $ 653 $ 4,114 $ 4,767 $ 2,145 1987-1988 11/01/88 5-40 Deerfield Apartments 240 5,068 5,308 2,280 1986 10/24/90 5-40 Totals $ 893 $ 9,182 $10,075 $ 4,425
Reconciliation of "Investment Properties and Accumulated Depreciation": Years Ended December 31, 2002 2001 (in thousands) Investment Properties Balance at beginning of year $ 9,779 $16,073 Property improvements 335 211 Casualty event write off (39) (55) Sale of property -- (6,450) Balance at end of year $10,075 $ 9,779 Accumulated Depreciation Balance at beginning of year $ 3,996 $ 5,976 Additions charged to expense 440 412 Casualty event write off (11) (22) Sale of property -- (2,370) Balance at end of year $ 4,425 $ 3,996 The aggregate cost of the real estate for Federal income tax purposes at December 31, 2002 and 2001, is approximately $9,982,000 and $9,683,000, respectively. The accumulated depreciation taken for Federal income tax purposes is approximately $4,526,000 and $4,042,000 at December 31, 2002 and 2001, respectively. Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures Effective June 27, 2002, the Registrant dismissed its prior Independent Auditors, KPMG LLP ("KPMG") and retained as its new Independent Auditors, Ernst & Young LLP. KPMG's Independent Auditors' Report on the Registrant's financial statements for the calendar year ended December 31, 2001 did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. The decision to change Independent Auditors was approved by UIRE's directors. During the calendar year ended 2001 and through June 27, 2002, there were no disagreements between the Registrant and KPMG on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which disagreements if not resolved to the satisfaction of KPMG, would have caused it to make reference to the subject matter of the disagreements in connection with its reports. Effective June 27, 2002, the Registrant engaged Ernst & Young LLP as its Independent Auditors. During the last two calendar years and through June 27, 2002, the Registrant did not consult Ernst & Young LLP regarding any of the matters or events set forth in Item 304 (a)(2)(i) and (ii) of Regulation S-B. PART III Item 9. Director, Executive Officers, Promoters and Control Persons, Compliance with Section 16(a) of the Exchange Act United Investors Growth Properties (the "Registrant" or "Partnership") has no officers or directors. United Investors Real Estate, Inc. ("UIRE" or the "General Partner") manages and controls the Partnership and has general responsibility and authority in all matters affecting its business. The names of the director and the executive officers of UIRE, their ages and the nature of all positions with UIRE presently held by them are set forth below. There are no family relationships between or among any officers and directors. Name Age Position Patrick J. Foye 45 Executive Vice President and Director Paul J. McAuliffe 46 Executive Vice President and Chief Financial Officer Thomas C. Novosel 44 Senior Vice President and Chief Accounting Officer Patrick J. Foye has been Executive Vice President and Director of the General Partner since October 1, 1998. Mr. Foye has served as Executive Vice President of AIMCO since May 1998, where he is responsible for continuous improvement, acquisitions of partnership securities, consolidation of minority interests, and corporate and other acquisitions. Prior to joining AIMCO, Mr. Foye was a Merger and Acquisitions Partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998. Paul J. McAuliffe has been Executive Vice President and Chief Financial Officer of the General Partner since April 1, 2002. Mr. McAuliffe has served as Executive Vice President of AIMCO since February 1999 and Chief Financial Officer of AIMCO since October 1999. From May 1996 until he joined AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp. Thomas C. Novosel has been Senior Vice President and Chief Accounting Officer of the General Partner since April 1, 2002. Mr. Novosel has served as Senior Vice President and Chief Accounting Officer of AIMCO since April 2000. From October 1993 until he joined AIMCO, Mr. Novosel was a partner at Ernst & Young LLP, where he served as the director of real estate advisory services for the southern Ohio Valley area offices but did not work on any assignments related to AIMCO or the Partnership. One or more of the above persons are also directors and/or officers of a general partner (or general partner of a general partner) of limited partnerships which either have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15(d) of such Act. Further, one or more of the above persons are also directors and/or officers of Apartment Investment and Management Company and the general partner of AIMCO Properties, L.P., entities that have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15 (d) of such Act. The executive officers and director of the General Partner fulfill the obligations of the Audit Committee and oversee the Partnership's financial reporting process on behalf of the General Partner. Management has the primary responsibility for the financial statements and the reporting process including the systems of internal controls. In fulfilling its oversight responsibilities, the executive officers and director of the General Partner reviewed the audited financial statements with management including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements. The executive officers and director of the General Partner reviewed with the independent auditors, who are responsible for expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles, their judgments as to the quality, not just the acceptability, of the Partnership's accounting principles and such other matters as are required to be discussed with the Audit Committee or its equivalent under generally accepted auditing standards. In addition, the Partnership has discussed with the independent auditors the auditors' independence from management and the Partnership including the matters in the written disclosures required by the Independence Standards Board and considered the compatibility of non-audit services with the auditors' independence. The executive officers and director of the General Partner discussed with the Partnership's independent auditors the overall scope and plans for their audit. In reliance on the reviews and discussions referred to above, the executive officers and director of the General Partner have approved the inclusion of the audited financial statements in the Form 10-KSB for the year ended December 31, 2002 for filing with the Securities and Exchange Commission. The General Partner has reappointed Ernst & Young LLP as independent auditors to audit the financial statements of the Partnership for 2003. Fees for 2002 were audit services of approximately $33,000 and non-audit services (tax-related) of approximately $15,000. Item 10. Executive Compensation Neither the director nor the officers received any remuneration from the Partnership during the year ended December 31, 2002. Item 11. Security Ownership of Certain Beneficial Owners and Management Except as provided below as of December 31, 2002, no affiliate of the General Partner or no person was known by the Partnership to be the beneficial owner of more than 5 percent (5%) of the Units of the Partnership: Entity Number of Units Percentage of Total AIMCO Properties, LP 10,392 26.45% (an affiliate of AIMCO) United Investors Real Estate, Inc. 3,926 9.99% (the General Partner and an affiliate of AIMCO) Insignia Properties, LP 10 .03% (an affiliate of AIMCO) Insignia Properties, LP and United Investors Real Estate, Inc. are indirectly ultimately owned by AIMCO. Their business address is 55 Beattie Place, Greenville, South Carolina, 29602. AIMCO Properties, LP is indirectly but ultimately controlled by AIMCO. Its business address is Stanford Place 3, 4582 S. Ulster St. Parkway, Suite 1100, Denver, Colorado 80237. No director or officer of the General Partner owns any Units. Item 12. Certain Relationships and Related Transactions The Partnership has no employees and is dependent on the General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement provides for (i) certain payments to affiliates for services and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. During the years ended December 31, 2002 and 2001, affiliates of the General Partner were entitled to receive 5% of gross receipts from all of the Registrant's residential properties as compensation for providing property management services. The Registrant paid to such affiliates approximately $85,000 and $95,000 for the years ended December 31, 2002 and 2001, respectively. An affiliate of the General Partner received reimbursement of accountable administrative expenses amounting to approximately $82,000 and $67,000 for the years ended December 31, 2002 and 2001. Included in these amounts are fees related to construction management services provided by an affiliate of the General Partner of approximately $26,000 and $17,000 for the years ended December 31, 2002 and 2001, respectively. The construction management service fees are calculated based on a percentage of current year additions to investment properties. As of December 31, 2002, the Partnership owed approximately $51,000 to an affiliate of the General Partner for reimbursement of accountable administrative expenses. During the years ended December 31, 2002 and 2001, an affiliate of the General Partner advanced the Partnership approximately $424,000 and $28,000 to cover operating obligations at Deerfield Apartments and the Partnership. The Partnership was able to repay approximately $78,000 and $18,000 of such advances during the years ended December 31, 2002 and 2001. At December 31, 2002, the Partnership owed an affiliate of the General Partner approximately $367,000. Interest is being charged at prime rate plus 2%, or 6.25%, at December 31, 2002, in accordance with the Partnership Agreement. During the year ended December 31, 2002, the Partnership recognized interest expense of approximately $15,000 relative to obligations to affiliates. No interest expense was recognized during the year ended December 31, 2001. Beginning in 2001, the Partnership began insuring its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty and vehicle liability. The Partnership insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the General Partner. During the years ended December 31, 2002 and 2001, the Partnership paid AIMCO and its affiliates approximately $29,000 and $18,000, respectively, for insurance coverage and fees associated with policy claims administration. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 14,328 limited partnership units in the Partnership representing 36.47% of the outstanding Units at December 31, 2002. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional units of limited partnership interest in the Partnership in exchange for cash or a combination of cash and Units in the operating partnership of AIMCO either through private purchases or tender offers. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters which would include voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. Although the General Partner owes fiduciary duties to the limited partners of the Partnership, the General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the General Partner, as general partner, to the Partnership and its limited partners may come into conflict with the duties of the General Partner to AIMCO, as its sole stockholder. Item 13. Exhibits and Reports on Form 8-K (a) Exhibits: See Exhibit Index attached (b) Reports on Form 8-K filed in the fourth quarter of calendar year 2002: None. Item 14. Controls and Procedures The principal executive officer and principal financial officer of the General Partner, who are the equivalent of the Partnership's principal executive officer and principal financial officer, respectively, have, within 90 days of the filing date of this annual report, evaluated the effectiveness of the Partnership's disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) and have determined that such disclosure controls and procedures are adequate. There have been no significant changes in the Partnership's internal controls or in other factors that could significantly affect the Partnership's internal controls since the date of evaluation. The Partnership does not believe any significant deficiencies or material weaknesses exist in the Partnership's internal controls. Accordingly, no corrective actions have been taken. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. UNITED INVESTORS GROWTH PROPERTIES By: United Investors Real Estate, Inc. Its General Partner By: /s/Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/Thomas C. Novosel Thomas C. Novosel Senior Vice President and Chief Accounting Officer Date: March 28, 2003 In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/Patrick J. Foye Executive Vice President Date: March 28, 2003 Patrick J. Foye and Director /s/Thomas C. Novosel Senior Vice President Date: March 28, 2003 Thomas C. Novosel and Chief Accounting Officer CERTIFICATION I, Patrick J. Foye, certify that: 1. I have reviewed this annual report on Form 10-KSB of United Investors Growth Properties; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 28, 2003 /s/Patrick J. Foye Patrick J. Foye Executive Vice President of United Investors Real Estate, Inc., equivalent of the chief executive officer of the Partnership CERTIFICATION I, Paul J. McAuliffe, certify that: 1. I have reviewed this annual report on Form 10-KSB of United Investors Growth Properties; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 28, 2003 /s/Paul J. McAuliffe Paul J. McAuliffe Executive Vice President and Chief Financial Officer of United Investors Real Estates, Inc., equivalent of the chief financial officer of the Partnership UNITED INVESTORS GROWTH PROPERTIES INDEX TO EXHIBITS Exhibit 1.0 Form of Dealer Manager Agreement between the General Partner and the Dealer Manager, including Form of Soliciting Broker Agreement; incorporated by reference to Exhibit 1 to Partnership's Amendment to Registration Statement (File No. 33-21114) previously filed on June 9, 1988. 1.1 Amendment to Dealer Manager Agreement; incorporated by reference to Exhibit 1.1 to Post-Effective Amendment No. 2 to Partnership's Registration Statement previously filed on March 21, 1989. 2.1 Agreement and Plan of Merger, dated as of October 1, 1998, by and between AIMCO and IPT; incorporated by reference to Exhibit 2.1 filed with Registrant's Current Report on Form 8-K dated October 1, 1998. 4.1 Form of Subscription Agreement; incorporated by reference as part of the Prospectus of Partnership contained in Partnership's Amendment to Registration Statement previously filed on June 9, 1988. 4.2 Form of Agreement of Limited Partnership of Partnership; incorporated by reference as part of the Prospectus of Partnership contained in Partnership's Amendment to Registration Statement previously filed on June 9, 1988. 4.3 Seventh Amendment to Agreement of Limited Partnership of Partnership; incorporated by reference to Exhibit 4.3 to Partnership's Quarterly Report on Form 10-Q previously filed on May 15, 1989. 4.4 Agreement of Joint Venture of Renaissance Village Associates dated March 22, 1991 between United Investors Growth Properties (A Missouri Limited Partnership) and United Investors Growth Properties II (A Missouri Limited Partnership); incorporated by reference to Exhibit 4.4 to Partnership's Quarterly Report on Form 10-Q previously filed on April 24, 1991. 10.1 Escrow Agreement among the Partnership, the General Partner, the Dealer Manager, and Boston Safe Deposit & Trust Company; incorporated by reference to Exhibit 10.1 to Partnership's Amendment to Registration Statement previously filed on June 9, 1988. 10.1.1 Amendment to Escrow Agreement; incorporated by reference to Exhibit 10.1.1 to Partnership's Quarterly Report on Form 10-Q previously filed on November 3, 1989. UNITED INVESTORS GROWTH PROPERTIES INDEX TO EXHIBITS 10.2 Agreement of Purchase and Sale, dated June 9, 1988, with amendments dated June 27, 1988 and July 5, 1988, respectively, between United Investors Real Estate, Inc., as nominee for United Investors Growth Properties, as purchaser, and Domion-Bothell Associates, as seller, relating to Terrace Royale Apartments; incorporated by reference to Exhibit 10.1 to Partnership's Quarterly Report on Form 10-Q previously filed on August 11, 1988. 10.3 Promissory Note, dated October 3, 1988, between United Investors Real Estate, Inc., as nominee for United Investors Growth Properties, as borrower, and Confederation Life Insurance Company, as lender; incorporated by reference to Exhibit 10.1 to Partnership's Quarterly Report on Form 10-Q previously filed on November 14, 1988. 10.4 Deed of Trust, dated October 3, 1988, between United Investors Real Estate, Inc., as nominee for United Investors Growth Properties, as grantor, and Confederation Life Insurance Company, as beneficiary; incorporated by reference to Exhibit 10.2 to Partnership's Quarterly Report on Form 10-Q previously filed on November 14, 1988. 10.5 Agreement of Purchase and Sale, dated October 31, 1988, between United Investors Real Estate, Inc., as purchaser, and Cheyenne Woods Limited Partnership, as seller, relating to Cheyenne Woods Apartments; incorporated by reference to Exhibit 10.5 to Post-Effective Amendment No. 1 to Partnership's Registration Statement previously filed on February 1, 1989. 10.6 Promissory Note and Deed of Trust with respect to the Permanent Loan on Cheyenne Woods Apartments; incorporated by reference to Exhibit 10.6 to Partnership's Current Report on Form 8-K previously filed on April 28, 1989. 10.7 Agreement of Purchase and Sale, between United Investors Growth Properties (A Missouri Limited Partnership), as purchaser, and Central Life Assurance Company, as seller, executed by the parties on August 11 and August 14, 1989, relating to Greystone South Plaza Center, and amendments thereto; incorporated by reference to Exhibit 10.7 to Partnership's Current Report on Form 8-K previously filed on December 12, 1989. 10.8 Promissory Note and First Mortgage and Security Agreement with respect to the Permanent Loans on Greystone South Plaza Center; incorporated by reference to Exhibit 10.8 to Partnership's Current Report on Form 8-K previously filed on December 12, 1989. 10.8.1 Modification Agreement between United Investors Growth Properties and Central Life Assurance Company with respect to the Permanent Loans on Greystone South Plaza Center; incorporated by reference to Exhibit 10.8.1 to Partnership's Quarterly Report on Form 10-Q previously filed on August 13, 1991. 10.9 Master Lease dated November 27, 1989 between United Investors Growth Properties and Central Life Assurance Company; incorporated by reference to Exhibit 10.9 to Partnership's Current Report on Form 8-K previously filed on December 12, 1989. 10.9.1 Lease Termination Agreement between United Investors Growth Properties and Central Life Assurance Company, with respect to the Master Lease dated November 27, 1989; incorporated by reference to Exhibit 10.9.1 to Partnership's Quarterly Report on Form 10-Q previously filed on November 12, 1991. 10.10 Agreement of Purchase and Sale, between United Investors Growth Properties (a Missouri limited partnership), as purchaser, and Deerfield Apartments Limited (A Tennessee Limited Partnership), as seller, dated July 18, 1990, relating to Deerfield Apartments; incorporated by reference to Exhibit 10.10 to Partnership's Quarterly Report on Form 10-Q previously filed on August 15, 1990. 10.11 Promissory Note and Deed of Trust with respect to the Permanent Loan on Deerfield Apartments; incorporated by reference to Exhibit 10.11 to Partnership's Quarterly Report on Form 10-Q previously filed on November 8, 1990. 10.12 Standby Loan Commitment with respect to the financing of Deerfield Apartments; incorporated by reference to Exhibit 10.12 to Partnership's Quarterly Report on Form 10-Q previously filed on November 8, 1990. 10.13 Agreement of Purchase and Sale, dated August 27, 1990, between United Investors Real Estate, Inc., as purchaser, and Mueller Development Company, as seller, relating to Renaissance Village Apartments, and amendments thereto; incorporated by reference to Exhibit 10.2 to Partnership's Post-Effective Amendment No. 1 Registration Statement (File No. 33-34111) of United Investors Growth Properties II previously filed on December 6, 1990. 10.13.1 Seventh and Eighth Amendments to Agreement of Purchase and Sale between United Investors Real Estate, Inc., as purchaser, and Mueller Development Company, as seller, relating to Renaissance Village Apartments; incorporated by reference to Exhibit 10.13.1 to Partnership's Quarterly Report on Form 10-Q previously filed on April 24, 1991. 10.14 Promissory Note and Deed of Trust with respect to the Permanent Loan on Renaissance Village Apartments; incorporated by reference to Exhibit 10.14 to Partnership's Quarterly Report on Form 10-Q previously filed on April 24, 1991. 10.15 Stock Purchase Agreement dated December 4, 1992 showing the purchase of 100% of the outstanding stock of United Investors Real Estate, Inc. by MAE GP Corporation; incorporated by reference to Exhibit 10.15 to Partnership's Current Report on Form 8-K previously filed on January 14, 1993. 10.16Purchase and Sale Agreement, made as of the 19th of July 1995, by and between Kauri Investments, Ltd., a Washington Corporation, and Renaissance Village Associates, JV, a Kansas joint venture. (Incorporated by reference to the Annual Report on Form 10-KSB for the year ended December 31, 1995.) 10.17 Amendment to Purchase and Sale Agreement, made as of the 10th day of August 1995, by and between Kauri Investments, Ltd., a Washington Corporation, and Renaissance Village Associates, JV, a Kansas joint venture. (Incorporated by reference to the Annual Report on Form 10-KSB for the year ended December 31, 1995.) 10.18 Multifamily Note dated August 7, 1997, by and between Cheyenne Woods, L.L.C., a South Carolina limited liability company, and Green Park Financial Limited Partnership, a District of Columbia Limited Partnership (Incorporated by reference to the Annual Report on Form 10-KSB for the year ended December 31, 1995.) 10.19Promissory Note dated November 20, 1997, by and between Deerfield Apartments, L.L.C., a South Carolina limited liability company and Lehman Brothers Holdings, Inc., a Delaware corporation. 10.20 Promissory Note dated January 29, 1999, by and between AIMCO Terrace Royale, L.L.C., a South Carolina limited liability company and GMAC Commercial Mortgage Corporation, a California Corporation. 10.21 Purchase and Sale Contract between Registrant and Cheyenne Woods Apartments, LLC, a Nevada limited liability company (Filed on January 12, 2001) (incorporated by reference to the Annual Report on Form 10-KSB for the year ended December 31, 2000). 99 Certification of Chief Executive Officer and Chief Financial Officer. 99.1 Portions of Prospectus of Partnership dated June 13, 1988; incorporated by reference to Exhibit 99.1 to Partnership's Report on Form 10-K previously filed on March 6, 1991. Exhibit 99 Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Annual Report on Form 10-KSB of United Income Growth Partnership (the "Partnership"), for the year ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Patrick J. Foye, as the equivalent of the chief executive officer of the Partnership, and Paul J. McAuliffe, as the equivalent of the chief financial officer of the Partnership, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. /s/Patrick J. Foye Name: Patrick J. Foye Date: March 28, 2003 /s/Paul J. McAuliffe Name: Paul J. McAuliffe Date: March 28, 2003 This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Partnership for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.